Not Excited by ‘Expanded’ Green Mountain, Starbucks Deal: Greenberg

Just my conjecture, and not one that is likely to surprise longtime readers, but to me today’s announcement that Starbucks is expanding its relationship with Green Mountain has a decaffeinated punch.

Not that you’d know it from Green Mountain’s stock , which as I write is up 8% on the news.

But there are traders and investors – and investors may want to take a look at what I view as the somewhat comedic timeline of the relationship between Starbucks and Green Mountain, which I do below.

But first, the news: In an announcement today, the companies said that Starbucks will manufacture and market coffee using Green Mountain’s so-called “Vue” packs for Green Mountain’s new Vue brewer. The new brewer, announced last month, is Green Mountain’s attempt to get ahead of patents expiring later this year on the original K-Cups used in Keurig system. So far, Green Mountain has announced the brewer last month with initial limited distribution through Bed, Bath & Beyond.

My take: While this is not a negative for Green Mountain, the story is more about Starbucks. Starbucks is in the business of selling coffee. It already has a relationship with Green Mountain’s K-Cup. The Vue is a natural expansion—it's another way for Starbucks to sell coffee.

Details of the deal weren’t disclosed, so it’s unclear about the expanded deal’s economics—or even whether the new deal means the existing K-Cup deal was re-written with different terms.

But given the timing, notably that Starbuck’s Vue deal as not part of the Vue rollout, you can’t help but wonder who got the upper hand.

That’s where the timeline comes in.

Let’s go back to a little over a year ago, when there was speculation Starbucks was going to strike a partnership deal with Green Mountain—or go it alone.

Out of nowhere came a leaked memo from Starbucks’ CEO Howard Schultz, who praised Green Mountain for its role in developing the single-serve market, but then added this zinger: "As I have said, these are very early days, and history has demonstrated time and again that patents alone do not determine market winners—deep customer engagement, best-in-class experiences and quality do.”

Then, one month later, on March 10, the two reached an agreement for Starbucks to sell coffee using K-Cups.

Fast-forward nearly one year: On February 15 Green Mountain rolled out the Vue, using newly patented Vue packs. At the time, there was no mention of Starbucks producing coffee for the Vue.

About one week later, on February 27, Green Mountain holder and partner LaVazza—one of Italy’s biggest coffee makers—disclosed it was lowering its six-plus percent stake in Green Mountain to under the reportable 5%. Lavazza cited “global economic issues.” This was significant because Green Mountain has been saying that the two are working on a machine that makes single-serve espresso.

Then, on March 8, Starbucks announced it was rolling out its own single-serve espresso machine, partnering with a German company. Unlike the Keurig or Vue, which use low-pressure technology, Starbucks said its new Verismo used high-pressure technology with a twist: It would also produce brewed coffee.

In a conference call announcing the machine, in response to investor questions, Starbucks said it had been “transparent” with Green Mountain about what it was doing. Schultz also went out of his way to praise the Green Mountain relationship.

But in an SEC filing after the market closed the very next day—a Friday—Green Mountain reiterated its prior commitment to producing a single-serve espresso machine with Lavazza. In an apparent slap at Starbucks claim of transparency, it also said, “Prior to the press release issued by Starbucks yesterday and their subsequent public comments, however, we were not made aware of any additional capabilities of their planned espresso system.”

Enter today’s announcement. You can only assume who got the better end of this deal. I have my hunches.